A federal bill may roll back Dodd-Frank regulations

Congressional attempts to deregulate the finance industry have been set in motion with a bill passed by the House of Representatives: the Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs Act (CHOICE Act).

The CHOICE Act seeks to repeal several rules implemented under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the 2010 legislative overhaul of financial regulations aimed at protecting consumers from predatory finance practices and preventing another financial crisis.

Though the CHOICE Act was passed unanimously by the House in June, its fate now rests in the hands of the Senate — a likely opponent of the bill due to the Senate’s majority support for Dodd-Frank regulations.

About the Financial CHOICE Act

Through implementation of the CHOICE Act, the House aims to reduce the number of regulations controlling financial institutions to encourage a competitive banking market, promote economic growth and help sustain small banks — which they claim are severely hindered by Dodd-Frank.

applying Chapter 11 bankruptcy rules for the reorganization of assets and debt to failing financial corporations;

converting the Consumer Financial Protection Bureau (CFPB) into the Consumer Law Enforcement Agency, replacing its director with a deputy director appointed by the president and subjecting the agency to congressional oversight and appropriations — significantly reducing its authoritative reach;

repealing the CFPB’s authority to ban financial services or products as “abusive” and to prohibit arbitration;

elimination of the Office of Financial Research (OFR) which collects and analyzes data from the financial market;

revoking the Volcker Rule that bars short-term proprietary trading of securities to curtail risky practices; and

repealing the requirement for banks to maintain a minimum amount of reserve capital to provide a cushion during financial trouble.

Supporters of the CHOICE Act say these changes will loosen excessive restrictions that limit the function of financial service providers and hinder access to loans (a claim unsubstantiated by market data).

However, opponents warn against the risk of gutting critical Dodd-Frank regulations that protect consumers and mitigate dangerous practices — namely, the possibility of another nationwide financial crisis.

As expected, Dodd-Frank is supported by consumer advocates, but often opposed by lenders and other financial institutions — some of the same bad actors whose unchecked behavior contributed to the financial meltdown. This is a trend largely mirrored by the responses to the CHOICE Act.

In fact, Dodd-Frank’s and the CFPB’s popularity among consumers and advocates is a formidable obstacle to those who seek to gut or bypass the regulations, making much of the repeals proposed by the CHOICE Act nearly impossible.

Though Dodd-Frank is not without flaws, it serves an important purpose in the regulation of the finance industry. Those with a fresh memory of the financial crisis will recall the severe consequences of allowing financial institutions free rein, and why eliminating many Dodd-Frank regulations will do more harm than good.

What’s next?

Presently, the CHOICE Act is awaiting review by the Senate, which is expected to reject the bill and craft its own legislation to address some of the issues laid out in the CHOICE Act.

However, expect the back-and-forth legislative reform to span several months. As before, development, passage and implementation of financial regulation amendments will occur over a prolonged period of time.

Though the current administration is determined to dismantle Dodd-Frank and reduce the CFPB’s authority, mounting opposition will hinder this process. Opponents remain in support of Dodd-Frank and the CFPB’s current agenda to educate borrowers and take enforcement actions against lenders that violate consumer protection regulations.

Further, if the CFPB’s authority is significantly diminished — as proposed under the CHOICE ACT — the CFPB’s policy agenda is likely to change with every new administration. The effect will be not only to interfere with the CFPB’s regulation of lending practices, but also to create confusion for mortgage and real estate professionals.

It now remains to be seen just what type of changes Dodd-Frank regulations will undergo, if any — and when.

3 Comments

Mark Shrader
on September 12, 2017 at 1:31 pm

Who the hell wtote this article? Dodd Frank has been a disaster. More government oversight is Never the answer. Enforce laws already on the books. Now we have huge Wall Street rental cartels instead of first time or move up buyers in the market. Hopefully the clowns supporting Dodd Frank are voted out of office

Thank you very much, I value your analysis and opinions, which I believe are free of bias, and focus on what will be best for ordinary Americans, not what is best for mortgage industry profits.

I am a hard money broker in CA for the past 40 years, My industry has been harmed in important ways by current regulations which effectively prohibit needed financing for some consumer borrowers, but these regulations should be fixed and fine tuned, not discarded..

After 34 years of providing full service private money loans with much needed private money resources to home owners in the Central Valley, we quit providing certain loan types about 2011/12 forward and since down sized and re-branded only to perform non owner business loans, small commercial loans, land loans, etc. We were severely handcuffed and lived in constant concern if violations were to occur with DRE/BRE along with adding Consumer Finance, etc. and requirements for Federal Licensing as well.

Major cost burdens forced many reasonable and good brokers out of the business. While we have many homeowners call us for help, we turn them away not even wanting to become involved in referring business as well.

We are in constant state of review of is it “worth it”…..we shall see.

klesb Mike, you have identified the problem well. Democrats in government are anxiously trying to apply their economic theories to issues that require market based solutions... – Los Angeles rental crisis continues in 2019

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